Public Sector Undertakings: A UPSC ready guide on PSUs for Prelims and Mains.

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Context

Over the last five years, the Union Government has nearly doubled its dividend income from PSUs to around ₹74,000 crore. According to DIPAM data analysed by The Hindu, 5 fuel-related PSUs (e.g., ONGC, IOC, BPCL, Coal India) alone contributed 42% of total dividends since FY 2020-21. This shows the government’s increasing reliance on a few extractive sector PSUs for non-tax revenue.

1. Definition & Constitutional Backing

  • PSUs are companies where majority ownership (≥51%) is with the government.

  • Can be Central PSUs (CPSUs) or State PSUs.

  • Rooted in Article 298 (executive power to carry on trade/business).

2. Types of PSUs

  • Statutory Corporations – Formed by Acts of Parliament (e.g., LIC, FCI).

  • Government Companies – Registered under Companies Act (e.g., ONGC, SAIL).

  • Departmental Undertakings – Directly under ministries (e.g., Railways, Post).

3. Categorization of CPSUs

By Department of Public Enterprises:

  • Maharatna – (e.g., ONGC, NTPC, Indian Oil)

  • Navratna – (e.g., HAL, BEL)

  • Miniratna – Category I & II (e.g., RITES, NSIC)

Based on:

  • Net worth

  • Turnover

  • Global presence

  • Profit for 3 years

4. Evolution & Historical Role

  • Emerged post-Independence for commanding heights of the economy.

  • 2nd Five-Year Plan (Nehruvian model): PSUs in core and strategic sectors.

  • 1991 reforms: Shifted from state ownership to liberalization and disinvestment.

5. Structure & Governance

  • Controlled by ministries and governed under Companies Act.

  • Administered by Ministry of Heavy Industries and Department of Public Enterprises (DPE).

  • Board of Directors includes CMD, functional directors, govt nominees.

6. Funding

  • Initial capital from Union/State budgets.

  • Raise capital via:

    • Bonds

    • Market borrowings

    • Retained earnings

  • Some get Plan/Non-plan budgetary support.

7. Significance

  • Backbone of Indian industrialisation and self-reliance.

  • Key roles in:

    • Employment generation

    • Strategic control (energy, defence)

    • Infrastructure creation

    • Resource mobilisation via dividends and taxes

8. Issues & Challenges

  • Low efficiency and political interference

  • Overstaffing, delays, cost overruns

  • Poor returns on investments in many PSUs

  • Redundant business areas due to liberalisation

9. Disinvestment & Strategic Sale

  • Managed by Department of Investment and Public Asset Management (DIPAM).

  • Disinvestment types:

    • Minority stake sale (retaining control)

    • Strategic sale (loss of control)

    • IPOs of PSUs

  • Notable cases: Air India (strategic), LIC (IPO)

10. Initiatives & Reforms

  • New PSE Policy, 2021:

    • Divides sectors into Strategic & Non-Strategic

    • Strategic: Max 4 PSUs to remain

    • Non-strategic: All can be privatized

  • Push for:

    • Monetisation (NMP)

    • Governance reforms (independent boards)

    • Listing on stock exchanges

11. Future Prospects

  • Focus shifting to:

    • Core strategic areas only

    • Privatisation of non-essential PSUs

    • Professionalisation of boards

    • Use as national champions in global supply chains

  • Role in climate transition and digital infrastructure

12. Conclusion

PSUs remain central to India’s strategic autonomy, economic development, and revenue generation. However, many face performance and governance challenges. The New PSE Policy reflects a calibrated shift toward a leaner, more strategic PSU ecosystem, with clear privatisation intent in non-core areas. Moving forward, India must balance reform with retention, ensure fiscal prudence, and enhance the productivity and transparency of its PSU network to realise their full potential in a competitive global economy.


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